Wilbur Ross

Producer Notes

Wilbur Ross suggested that we interview him at his home in Palm Beach, Florida. It is a lovely home, modest by the standards of the neighborhood. Donald Trump's Mar-a-Lago is down the road. Wilbur Ross didn't offer us a fancy car, plane or boat to shoot. He didn't suggest that we shoot his offices. He was just available to talk. The morning of the shoot was oppressively hot. So when the clouds rolled in, we were grateful for the relief. Then the sky began to darken and a local radar check showed the storm rolling in. We rigged a small canopy and shot the interview in the rain. Mr. Ross was completely comfortable, if a bit damp. As we finished, the storm hit full force. And there was our story. Wilbur Ross, turnaround expert, had once again taken a venture from underwater, to success.

Video Interview

In and Out of Things

The "I Am" Q&A

What kind of car do you drive?I drive a variety of different cars.

What's your favorite place to go?Palm Beach.

What website do you like to visit?I like to visit the CNBC website and individual company websites as well.

What was your worst moment in business?Looking for a job the first time.

What is your favorite drink?Red wine.

What's your favorite food?Meat. Steak.

What is your idea of fun?Playing tennis and going to art museums.

And what's fun at work?Everything.

What movie star do you like?Oh boy, I don't have time to go to the movies very much.

Who's a business hero of yours?I would say Warren Buffett.

What personal qualities do you admire in business?Integrity, intelligence, and diligence.

Are you doing anything green, anything for the environment?Yes, we're about to do a very large clean-coal project in China, and we just bought one of the kids a car that's half electric battery hybrid.

What was your greatest moment in business?The day I bought the business.

What is your dream?My dream is to keep doing it for another 70 years.

Do you have a motto?Never assume anything.

What is your present state of mind?Good.

Transcript

CNBC:Why did you decide to specialize in bankruptcy?

WILBUR ROSS:It was happenstance. After Harvard Business School and the army, I went to the street. The firm I was with, Wood, Struthers, and Winthrop is a very conservative firm, so they fired the guy who was running the venture fund. I was the newest kid and they gave it to me to liquidate.

CNBC:So, it was just luck that you got involved bankruptcy?

WILBUR ROSS:Yes, back then a lot of those companies weren't so good so I started doing that. Then later on I went to work for the Rothschild family. The first thing they gave me to do was; Federal Express was about to go bankrupt. It was one of their big investments. I had to convince Citibank not to do it and a year later it went public, so it was serendipitous.

CNBC:That was quite a turnaround, Federal Express.

WILBUR ROSS:Yes, it became a wonderful company. Then I just started doing it more and more.

CNBC:When you bought out Rothschild you said that you felt a conflict between investing and advising?

WILBUR ROSS:Yes, correct. If Burlington Industries files bankruptcy do you try to become an advisor? Or do you try to buy the paper? You can't really do both. So for a little while what we were doing, the first fund invested in smaller companies, and we just did the bigger companies on advisory. I finally concluded it was better just to do the investing. I mean investing is a better business than advising. Also when you're an advisor, you don't get to eat your own cookie. You give people all this advice, they'll follow it, or they won't follow it. When you're making the decision yourself, you don't have that intervening variable, you sink or swim based in what you're doing.

CNBC:You were in kind of a unique position to have seen so many companies go through bankruptcy. So you had a different attitude.

WILBUR ROSS:Yes, we had a very different attitude from most people in the distress business, in that, we came from the advisory side, so we've always had an industrial point of view, a kind of company restructuring point of view, not a trading point of view, not a high-yield-desk point of view, so it was a very different perspective. I really think that helps account for why our style is so different from that of most of the others with whom other people invest.

CNBC:Could you explain that perspective?

WILBUR ROSS:Right. The way we're looking at things is to really own them. If we buy a bond at 30 cents on the dollar, it's not that we hope it goes to 35 so we can sell it. If we buy a bond at 30 cents on the dollar, it's because we want it to default and we want to own the business. When you own the business, it means you have to be in there for a number of years, because it takes a while to fix it, then it takes a while to get it public or get it sold. So it's a completely different mentality. In our shop, it's a big event if there's a trade in the whole day. Most places are trading, trading, and trading like mad, so it has a very different rhythm to it.

CNBC:Do you think right now, given the state of our economy, it's a particularly good time to have your perspective?

WILBUR ROSS:I think it's a good time to have a sane perspective. I think ours is one of the sane perspectives, so in that sense I think it is.

CNBC:Owning from an industrial point of view instead of trading point of view, why do you think that's saner?

WILBUR ROSS:Well, in distress activities, you can take a trading position and be in and out of things. In order to make a high rate of return doing that you generally have to use a fair amount of leverage and borrowing. We're not into that very much. We tend to have relatively little leverage on our companies. We do that quite deliberately, for one thing we feel, if the only way you can make a high rate of return is with a lot of leverage, maybe it means you're paying too much for it, so we tend to prefer to buy it quite inexpensively, not use a lot of leverage, and therefore also not have to worry if some bank or other lender will chicken out at the wrong time.

CNBC:Also you're not afraid of distressed businesses, which I think most people are.

WILBUR ROSS:No, we're not afraid of them if we've analyzed them properly. What we are afraid of is the question that we forgot to ask.

CNBC:Can you talk a little bit about your system?

WILBUR ROSS:When we're looking at an opportunity, first of all we look at it on an industry basis, because we've learned over the years that when companies go bad, they generally go bad as a whole industry. At one point it'll be all the airlines that are bad, another point all the steel companies, and another point the textiles. That's because what happens is you have industries that have been high users of leverage and then some catalytic event occurs, so the industry tends to have problems simultaneously. This creates two sets of opportunities, one is to fix the individual company, and second is the potential for changing the dynamics of the whole industry. If you can do both, then you get two big increments to value. So that's what we really try to shoot for.

CNBC:I read that you have a chart system? How does that work?

WILBUR ROSS:We use charts, not stock trading charts but business charts, and the way they work is, when we're looking at an industry we try to put down in paper everything we can imagine that's wrong with the industry. Usually it's quite a long list. We then go over it, and over it, and over it, and over it till we're pretty well satisfied that we've identified everything that is wrong or is very likely to go wrong. Then we start work on a second chart, which is if we have control of this industry, what would we do to fix these problems. When the two charts get more or less similar in length, that's when we get serious about investing.

CNBC:So what's more fun, looking at the problems or looking at the solutions?

WILBUR ROSS:The solutions are always more fun than identifying problems. We're basically optimists even though, we're dealing with situations than have a lot of pessimism.

CNBC:How does Wall Street perceive what you do?

WILBUR ROSS:I think different people perceive it in different ways. Some people joke that we're kind of the eraser on Wall Street's pencil and not everybody's comfortable with that. In general, I think we get along fine with the street. After all, the street is the manufacturer of the products that we deal with. Somebody has to fix them. Then there are lots of transaction fees for the street. Both when we're fixing and then when we go back out publicly they merge with another company or whatever.

CNBC:If you could explain what that phrase means, “the eraser on the pencil of Wall Street.”

WILBUR ROSS:Generally speaking, companies get into bankruptcy as a kind of meritocracy. Somebody made some sort of big mistake, to get into bankruptcy, and very often, a part of the mistake is too much leverage. So part of what the pencil eraser does, is getting rid of the excess stuff that was on it. That's usually only the start of things because, it's very rare that you have a fundamentally very strong company, and yet it goes bankrupt. As a result generally you have both a bad balance sheet, and a bad business, or at least serious business problems, which need to be addressed. So it's really a question of two erasers, rather than one.

CNBC:A lot of people I think are sort of in awe of how you manage to step in and deal with the unions. Somehow you've managed to walk in and negotiate where other people haven't been able to,

WILBUR ROSS:Well, one of the big factors in any big industrial turn around is the relationship between labor and management. This may surprise your audience that the big union leaders are generally very knowledgeable about the true conditions in the industry, and about what's needed. However they are not pushovers because their job is to get the best possible deal they can for their workers. So we have developed a very good working relationship with unions in a lot of industries. The way we've done is first of all by being totally honest with them. We open all the books, not just when we're negotiating, but any time they decide to have their accountants come in, they're free to review anything. Second, because we don't use a lot of debt, they know that it's not that we're asking their workers to make a concession just to pay a high coupon on somebody's junk bond. Third and perhaps most importantly, we believe in incentive payments to blue-collar workers. For example at International Steel Group, we literally made production targets for each big machine for each shift and to the degree that shift hit the target. Everyone on it got a bonus in the next biweekly paycheck. We paid hundreds of millions of dollars per year out, more than any American company I think has ever paid. It was well worth it, because it meant to the unions that we were truly partners. Sure, they had their role and we had our goal and they were a little different, but they only had one employer, and we only had one entity in which we had the equity. So in that sense, we wanted to be the partners. As a result we became their partners, and it's worked very well in a variety of industries.

CNBC:Do you think by the time you arrive on the scene they're grateful to have somebody saving their business?

WILBUR ROSS:It certainly is the case that by the time we get to buy something, there is a way that perhaps the whole thing will shut down. That obviously is a factor in the receptivity to change. But I think there's another factor. They generally know that there were mistakes made by management, though frequently you have the situation. Management is still getting big bonuses while the workers are being laid off. Managers are flying around in corporate jets while workers are being laid off. Management's going to country clubs all the time and the workers know that. But we didn't do any of that stuff. When we hire a manager for one of our companies we never pay more than whatever the last salary was. We require the manager to put a substantial part of his or her net worth into the company, on the same basis we are, and then we supplement the amount the person can afford with a loan, so they really have skin in the game. Then we lay over on top of that, bonuses based on the success of the business. So nobody with us gets a big bonus, except in the context of real success

CNBC:I'm interested on your perspective on the economy.

WILBUR ROSS:There are a lot of people very worried about the economy right now, and in fact I don't think the economy is in very good shape. I think what really happened was we went through a period when no lender was afraid of anything. That didn't work so well. Now we're in a reverse time period where every lender is everything. This is a result of a very severe contraction of credit. You may remember a year ago, everybody was saying you don't have to worry; there is all this excess liquidity that will take care of everything. However liquidity is not a physical phenomenon and is not just a lot of cash sloshing around. Liquidity is more of a state of mind. It's the willingness to take cash and put it all over the place. That is what has changed. There is no less money floating around in the world. What's not there anymore is people's willingness to commit it. And that's what has really changed the landscape. And I think it's going to take quite a while to get through the excesses that had occurred.

CNBC:In a business like yours, where you don't believe in being heavily leveraged, you're not that affected.

WILBUR ROSS:No, it doesn't bother us that much. However, it is creating some of the problems and therefore from our point of view, creating some of the opportunities.

CNBC:What opportunities are you seeing in the current problems?

WILBUR ROSS:In our current environment we've been doing both a number of manufacturing businesses. What we have been most identified with recently is financial service businesses. In manufacturing we've most importantly been building up very big auto-parts suppliers. We have created a company called International Auto Components, which now has some 25,000 employees, we're in 17 countries, we're doing almost $6 billion a year in revenues, and we have no net debt on the company at all, after all the acquisitions that it made. So it's in very good shape, even though this year is going to be a very tough year in Detroit. If anything it will be a year during which we add some things to the holdings. Now if we had a lot of debt, we would be more likely to become a target than an acquirer. That's one demonstration of how the philosophy works. At quite a different level we have made a very big commitment to Assured Guarantee, which is one of the few monoline insurers that has remained a solid Triple A rating. It is the first time in my life that I've come across a distressed company that was Triple A rated. Assured Guarantee is not really a distressed company. Its stock is distressed because of the problems some of the others in the industry are facing. So we provided it with up to $1 billion of capital, to take advantage of the rationalization of that independent, which we believe will occur. Our capital is not going to fill up holes, it's to help them either take over on a reinsurance basis business from some of the less well-situated companies, or perhaps acquire them altogether.

CNBC:You used to joke that you were sort of a 19th century investor because you were investing in steel and coal. Can you talk in general terms about this shift from investing in steel, coal, and textiles to the financial?

WILBUR ROSS:My wife Hillary sometimes accuses me of trying to reinvent the 19th century. In some ways she's right because I like things that I can understand and that aren't too complicated. So we don't really do high-tech things. We never did CDO's, CLO's, and all these very sophisticated products. We do fundamental industries, steel, coal, textiles, auto parts, etc… We don't do high-tech industries. We do industries that we can understand, that are much more fundamental. So we do steel, coal, textiles, auto parts, and now, financial services. Those are all fundamental industries. They're big industries and they're not going away. They are essential to the functioning of the economy, so they have a kind of ongoing potential vitality, and a critical mass. The problems differ from company to company. Generally speaking there are some similarities. There are always labor-management issues, there are always balance-sheet issues, and there are always strategic decisions that perhaps were not as well considered as they might have been. So there is some commonality among all of them. We actually are very open in dealings with the unions and that's different. Many managements hire battalions of lawyers, and then that makes the unions hire battalions of lawyers and everybody tries to outsmart everybody else. We don't do it that way. We think business people should negotiate the terms with the union leaders, and then give it to the lawyers to write it down and make it a formal document. We're very open because we're not trying to play games with the unions we are very open with them. We make full financial disclosure in the beginning, and let them send their accountants in to do whatever they want to double-check, and that's true on an ongoing basis. They know practically every month what's going on in each one of the factories. That is very important because it's the only way we know of to try and build trust. To have a fair commercial relationship with the union, and then to be very open about it, so that they know that there's no game and there's nothing being hidden.

CNBC:At some level they are relieved because they're hoping you are going save their entire industry.

WILBUR ROSS:Well, the unions like it when we succeed because even though we may make very large absolute sums that none of their workers could dream about, they're getting their end of the bargain which is a fair value for their services, a fair health-care system, a fair everything, and a secure job.

CNBC:Those are not the kind of issues you're going to have with Assured Guarantee because you're not dealing with labor issues here. What are the issues in the financial-guarantee section and how are you going to stabilize that?

WILBUR ROSS:The financial-guarantee sector is quite different from a manufacturing business. Assured Guarantee only has a couple of hundred employees and they're in Bermuda for the most part, it's a whole different picture there. The situation at Assured, is they've been victimized by problems that other companies in the industry have had. So now there's a concern on the part of issuers of debt securities, as to whether the guarantees really will be there if they're needed, and whether they add any incremental value. With Assured the issue is something quite different, it's to convince investors and issuers of debt securities, that they'll be there if and when the guarantee is needed, and that it truly is Triple A, will remain Triple A, and that therefore they're getting value from the premiums that they pay, this is more of a confidence-building exercise on the part of their customers, it is dealing with labor.

CNBC:How do you see yourself? You once said you had a cottage industry?

WILBUR ROSS:I see myself as a private-equity investor that helps rebuild companies. Restructuring is a cottage industry in that there aren't that many serious practitioners. The term that I really hate was when people call it a vulture business. To me a vulture is a creature that eats carrion, dead flesh off a bone. We're like the phoenix, the bird that arises from its own ashes, and recreates itself. The one term I don't like to be called, is a vulture. Because to me, a vulture is a kind of asset-stripper that eats dead flesh off the bones of a dead creature. Our bird should be the phoenix, the bird that reinvents itself, recreates itself from its ashes. And that's much closer to what it is that we really do.

CNBC:Stepping into the financial-guarantee sector right now; Is that a gesture of support for the economy?

WILBUR ROSS:Well, I think it will help the economy in the sense that it's essential to municipal bond offerings. Municipalities are under a great deal of stress with the weaker economy, so they all have heavy financing needs for that reason, and for infrastructure purposes. But our targets for making a high rate of return are just as true in that sector as they would be in any other sector.